Allen & Overy do battle with government for Railtrack shareholders' compensation

City firm Allen & Overy is looking to derail the government's plans to hand beleaguered Railtrack back to public ownership without compensating shareholders, it emerged this week.The announcement came after the High Court issued an unprecedented administration order under the Railways Act 1993 at a special sitting held at CMS Cameron McKenna's head office last week ([2001] Gazette, 11 October, 9).

CMS is acting for the government in the insolvency, with Slaughter & May advising administrators Ernst & Young.Allen & Overy now represents the Railtrack Shareholders Action Group, which comprises seven companies holding 20% of shares in the Railtrack Group.

A spokesman for the group said members were 'extremely angry' at the government's action and were considering litigation relating to the making of the order and past funding promises.'In addition, this obviously has serious implications for the willingness of institutions in future to commit the funds of pensioners and private investors to public/private finance partnerships,' he warned.

A spokesman for Allen & Overy said solicitors were in the process of gathering evidence before deciding which legal avenues to pursue.

Meanwhile, London law firm Edwin Coe is looking to create a consortium through a Web site set up for shareholders affected by the move.

It is www.railshares.com, set to go live on Saturday.David Greene, partner in the firm, said shareholders were confused and frustrated by government actions.

'For so many of these people, these shares were their nest egg,' he explained.

'If the government does not fulfil its obligations they will lose it all.

It is time for Mr Byers and the government to confirm they will compensate the shareholders.'But Stephen Byers, minister for the Department of Transport, Local Government and the Regions, stood firm when he reiterated the government's views in a statement to parliament this week.

He said: 'The Government stands behind the rail system but not individual rail companies and their shareholders who need to be fully aware of the projected liabilities of the companies in which they invest and the performance risks they face'.Paula Rohan